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State increasingly relying on higher cigarette taxes

09/23/02

BOSTON - The state is increasingly dependant on declining numbers of smokers to boost tax revenues, a tactic that historically has resulted in an influx of new revenue, followed by a gradual tapering off.

Lawmakers approved the largest cigarette tax hike in state history this year.
The 75-cent hike brings Massachusetts' cigarette tax up to $1.51 per pack, the highest of any state in the country.
Each time lawmakers have increased cigarette taxes during the past two decades, the state has enjoyed an injection of new cash, according to an Associated Press review of revenue statistics.
Each high is followed by a steady but small decline.
In 1985, two years after lawmakers hiked the cigarette tax from 21 cents to 26 cents, the state pulled in nearly $175 million in tobacco excise taxes. By 1992, revenues had fallen 21 percent, to $140 million.
Lawmaker then raised the cigarette tax to 51 cents, sparking another spike in revenues up to $237 million in 1994, the first full year the tax was in effect. Three years later, revenues had slipped to $233 million.
In October of 1996, lawmakers again hiked the cigarette tax, up to 76 cents a pack. Revenues jumped to $300 million, but by 2001 had slipped 10 percent to $270 million.
The pattern in part reflects declining smoking rates, a result that thrills public health officials, but could undermine the effectiveness of cigarette taxes to bail out fiscally strapped states.
"We want to put ourselves out of business," said Dr. David Rosenthal, chairman of the anti-smoking Massachusetts Coalition for a Healthy Future.
"There is a projection of a decline of 17 percent in teen smoking next year," he said. "This is what we see every time we raise taxes for cigarettes. We make cigarettes not as affordable for teens who don't have a lot of expendable cash."
Dwindling numbers of smokers hasn't stopped lawmakers from relying on higher cigarette taxes.
This year the Legislature doubled the tax to $1.51. The increase, which took effect at the end of July, is expected to bring in about $462 million in 2003, a 71 percent jump.
Lawmakers said higher taxes will help avoid deeper cuts to state services, although anti-smoking advocates complained that programs designed to discouraged smoking sustained some of the deepest budget cuts.
Early indications are that the higher tax is doing what lawmakers hoped.
In August, the first full month the tax was in effect, the state took in $38.5 million in cigarette excise taxes, compared to $25 million in August of last year.
Revenue officials say it's impossible to predict a trend from a single month, and warn revenues could slip if sales slide. Some store owners have reported declines in sales.
A pack-a-day smoker in Massachusetts will spend an extra $274 dollars a year as a result of the tax hike.